How to calculate ROI? formula with examples

How to calculate ROI? The short answer is: subtract the cost of an investment from its profit, divide the number obtained by the cost of the investment, and multiply the result by 100. This will give you a percentage value, known as the investment rate of return .

However, just knowing the ROI formula will not help you make better data-driven business decisions. It is necessary to understand what are the parameters analyzed and where your company is located in relation to the market average.

In this article, you'll find out what ROI is and how it's calculated , as well as what high ROI and low ROI mean. We will also provide you with practical advice to improve your performance and get the most out of your investments.

Shall we start?

What is ROI?

ROI is an acronym in English that stands for return on investment. In Spanish, we translate the term as return on investment . It is a performance metric used to assess how beneficial an investment was relative to its cost.

In other words, learning how to calculate ROI allows you to evaluate the effectiveness of an investment and therefore compare which strategies are best suited to achieve a specific goal.

To give you an idea, the average ROI of the tobacco industry is 800%, while the ROI of wholesalers reaches 20%, according to a recent study .

That is, when we talk about marketing KPIs, we must take into account the products and services that are being sold, including the specific costs of operating in that sector. After all, regulations and taxes will be different in each case and in each country.

Would you like to understand marketing concepts, such as ROI, in depth? We recommend you read: What is ROI?

What is the ROI metric for?

Before learning how to calculate ROI, we need to understand what the concrete applications of this metric are. Take a look at the top three uses!

It is used to evaluate profits and lossesFirst of all, ROI is a metric created to measure profit and loss in relation to an investment. That is, how advantageous or detrimental is the path we choose to follow in terms of profitability. In that sense, we can find out if we are earning more money than we initially invested or not .

It serves to guide strategic decisions

Imagine that a company wants to increase its conversion rates, that is, transform leads into paying customers. Is it more worth investing in social networks, email marketing or landing pages? Learning how to calculate ROI allows you to make this comparison objectively, revealing which investment opportunities are preferable at the time.

1. It serves to make smarter investments

Are you thinking of adopting new tools, expanding the team or creating a new department in your company? Calculating ROI can also help you make these important business decisions.

By monitoring the close rate of your salespeople, for example, you can find out how much money each one brings to the company. Based on this information, you can assess whether the cost of keeping that employee on the team is offsetting the financial return they bring to the organization.

As you can see, the ROI formula is suitable for any type of investment , including those that we sometimes do not see as such.

How to calculate ROI?

The great moment has arrived to learn how to calculate the ROI of your company. Here's the ROI formula to get you started:

ROI = (Return obtained – investment) ÷ investment x 100

The result of this account will be a percentage . Very simple, right? It takes less than a minute to do it. Let's look at an example to clarify each step of the ROI calculation.

Example of how to get ROI

Imagine that a marketing manager has a limited budget and wants to find out which digital channel is most efficient in converting leads. You decide to invest $100 in social media and $100 in email marketing. He managed to generate $500 in purchases via social networks and $900 through email.

Let's do the math!

• ROI for social media: (500-100) ÷ 100 x 100 = 400%
• ROI for email marketing: (900-100) ÷ 100 x 100 = 800%

By applying the ROI formula, we obtained a return of 400% for social networks and 800% for email marketing. This means that, in this example, email is twice as profitable for the company as social media.

In other words, the email is generating twice the money for the same amount of initial investment.

In a simplified analogy, it's like if you have a limited amount of money and want to buy chocolate. In a market, you can buy two bars; in another, you manage to buy four. See how easy it is to evaluate the best option based on this calculation?

What does positive investment rate of return mean?

Did you calculate your ROI and get a positive result ? This means that you made more money than you spent, which probably made your investment worthwhile.

However, this isolated result is not enough to tell you if you are doing well in the market. To do this, it is necessary to know the average rate of return on investment in your sector and compare the result obtained.

For example, if your industry's average ROI is 10% and you've reached 30%, it means you're better off than most companies in the market. On the other hand, if you got 5%, you may need to make changes to stay competitive.

What does negative investment rate of return mean?

If you calculated your ROI and got a negative result , this means that you are losing money. We explain: what this figure reveals is that your expenses were higher than the profit obtained with the investment analyzed.

There are some hypotheses for this result to have occurred, but it is important to highlight one of them: perhaps you did not have enough data to make an informed decision, considering all the risks involved.

This often occurs when a company's systems are not integrated and the available data cannot be translated into useful insights. In fact, this is a problem for 66% of organizations .

It is as if several people live in the same house, but want to use different keys for the front door. It's just not a functional strategy.

But do not worry. Here are practical tips to improve this marketing KPI.

How to improve the ROI of your company? 8 practical tips

Now that you know how to calculate ROI and perhaps already have your result at hand, we offer you 8 practical tips to improve your performance and get the most out of your investments.

Train your teams

According to a note in the Huffington Post newspaper , investing in employee training can increase company revenue by 24%.

By making professionals more qualified to perform their duties, the waste of essential work resources, such as time and money, is reduced.

In addition, you make employees feel important to the company and they become more proactive in returning this investment through good results at work.

Simplify checkout

According to Zendesk's 2021 Trend Report , 65% of customers want to buy from companies that make online transactions easy and fast .

You can meet this expectation by optimizing your sales pages for different devices, such as mobile phones, laptops, and tablets. This will ensure that everything goes smoothly, regardless of the platform used to search for a product or complete a purchase.

Another tip is to include buttons and calls to action that encourage the desired behavior. For example, downloading content or completing a form.

Improve customer service

The same Trend Report revealed that 75% of customers are willing to spend more with companies that offer a good customer experience . That is, the quality of the service can boost your rate of return on investment.

When a consumer feels that their needs are met, they tend to reward the brand with repeat purchases. In addition to generating more financial return, this behavior also suggests the level of satisfaction with the products and services.

Do you want to know how happy your customers are? Take a satisfaction survey today and answer this question!

Be omnichannel

According to a Think With Google study , omnichannel strategies can generate 80% more visits to online stores . If you learned how to calculate ROI in this article, you know that this means 8 times more profit opportunities.

It's a strategy that creates a unified experience across different channels, fostering cross-team collaboration and reducing friction for customers. Take a look at this explanatory video!

Automate repetitive tasks

A recent study found that marketing automations can boost team productivity by 20%. More than freeing up teams from repetitive tasks, the data suggests this can lead to higher revenue, faster lead conversions, and a shorter business sales cycle .

Adopt CRM software

According to a study by Nucleus Research , companies that adopt customer relationship management software can see their ROI be 8 times greater than the amount initially invested.

By having access to analytics tools, social collaboration, and other functionality, friction is reduced and business opportunities are created.

The support team, for example, can identify a customer interested in making a new purchase and easily forward the contact to the sales team. This integration increases the chances of conversion across all touch points.

Boost your ROI with Zendesk

There are no profits without customers. In that sense, learning how to extract ROI is only one of the steps of a successful business strategy . If you really want to build a community around your brand and have loyal customers, you need to invest in expertise.

With Zendesk's end-to-end service solution , you can:

• Increase the productivity of your teams with collaboration tools;
• Manage and answer queries from a single interface;
• Provide omnichannel support on any channel, no matter where the conversation starts;
• Offer self-service for customers to resolve issues at their own pace;
• Personalize interactions on a large scale;
• Increase support availability and answer frequently asked questions automatically with Answer Bot .

Do you dare to take a free trial and discover the ROI of having Zendesk by your side?